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Daily Newsletter, Thursday, 09/27/2001

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The Option Investor Newsletter                Thursday 09-27-2001
Copyright 2001, All rights reserved.                       1 of 2
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************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
       9-27-2001           High     Low     Volume Advance/Decline
DJIA     8681.42 +114.03  8681.42  8471.97  1.69 bln   1930/1197
NASDAQ   1460.71 -  3.33  1465.70  1418.15  2.04 bln   1799/1910
S&P 100   521.96 +  5.67   522.39   510.73   Totals    3729/3107
S&P 500  1018.61 + 11.57  1018.92   998.24
RUS 2000  392.96 +  3.17   393.32   384.43
DJ TRANS 2069.05 -  7.74  2081.25  2036.63
VIX        37.59 -  1.56    39.65    37.20
VXN        65.19 -  0.75    68.63    65.19
TRIN        1.03
Put/Call Ratio       .81
*************************************************************

A Rally or a Trap?

Lightning struck at 12:30 just as the shorts were starting to
drool over the prospects of another leg down. The Dow hit the
lows of 8471 on a weak sell program but that same dip under
8475 also triggered a buy program. That buy program shocked
the shorts into covering again and a few buyers were forced to
chase bids as the day drew to a close. The volume was far from
convincing at 1.5 billion on the NYSE but we will take everything
we can get.





The Nasdaq volume was better at slightly over two billion but
most of it was to the down side. All the Nasdaq big caps closed
in negative territory but the Nasdaq did finish +42 points off
its lows. The tech sector is still getting beaten up by the
analysts with constant downgrades and forecasts of gloom and
doom. The semiconductor sector was pounded with a downgrade by
Goldman Sachs and the SOX.X hit three year lows at 344. As the
SOX goes, so goes the Nasdaq.

The oil sector got a boost today after OPEC decided to leave
oil production at current levels. There is an increasing mood
to increase drilling closer to home and avoid our dependence
on oil that could stop flowing on a moments notice. Is it my
imagination or haven't we been here before? Each time we take
the easy way out once the crisis is over. Eventually the oil
will stop when somebody of importance gets mad at us and we
are going to be in real trouble. Until then talk will take
place of action.

The numbers are in! Actually they are out since TrimTabs.com
reported that over $10 billion in cash flowed out of U.S. stock
funds for the week ended on Wednesday. $10 B here and $10 B
there and pretty soon you have some real money. Actually since
the attack on Sept 11th the Nasdaq has lost -$285 billion in
market cap while stock funds have lost almost $20 billion in
cash. Funds are starting to report that redemptions are up but
not significantly. Still this is a change from last week when
the united answer was that investors were holding firm.

Other numbers of importance today included the Help Wanted
Index, New Home Sales and Jobless Claims. The Help Wanted
index fell five points to 53 in August and is the lowest
level since 1983. These numbers represent the levels prior
to the attack and could drop even further in a post disaster
climate. Faith in the home building sector was rocked as
August sales of 898,000 units were below the estimates of
925,000 and June/July numbers were revised downward as well.
The pace is still healthy but not as strong as analysts have
led investors to believe. The new wave of post attack layoffs
should blunt this number even further in Sept/Oct. The earliest
real numbers following the attack came from the jobless claims.
Last week 450,000 new claims were filed which was the highest
in nine years. While too early to draw any conclusions it
is quite possible that claims could exceed 500,000 with next
weeks release. Continuing claims rose to 3.298 million and prove
that there being rehired in a worsening job market is increasingly
difficult. Over 150,000 new layoffs have been announced in the
last week which have yet to be terminated or shown in the official
numbers. This will continue to drag on consumer confidence and
pressure retail sales.

The drop in stock prices as a result of the attack has prompted
the Nasdaq to drop the listing requirements for stocks. Previously
stocks had to trade over $1.00 to maintain their Nasdaq listing.
Once they trade under $1.00 for 30 consecutive days they were
subject to being kicked off the exchange. Seven of the Nasdaq 100
are now trading under $1.00 and over 600 current Nasdaq stocks trade
under that level. They approved a temporary easing of the restrictions
until Jan-2nd 2002 when the delisting period will begin again.
Stocks currently under review for delisting were grandfathered
into the reprieve and for the next three months they are back
to business as usual.

The volume today was decent given that the Yom Kippur holiday
kept many traders away from the action. The drop at the open had
those traders who were in the market holding their breath. As I
mentioned on Tuesday there are buyers in the market. They are not
aggressive but are simply providing a soft bottom by keeping their
offers under the current bids. Many fund managers were probably
holding off with their quarter end buying until they knew what
the redemptions were going to do to their cash position. They
were also hoping for another dip to make their buys. This meant
Thursday was decision day for the quarter and I think we saw the
results this afternoon.

Managers feel that stocks are undervalued in general. After all
Abbey Cohen said so twice in the last week! While I doubt they
really care what Abbey says they do care what their investors
think. They want to be heavily positioned in the blue chips and
light the tech stocks for their quarter end statements. They
want to make the statements a sales brochure to prevent new
redemptions and solicit new cash.



Friday should be a follow through day as shorts cover in the morning
and go flat for the weekend. The spark that triggered the buying
on Thursday afternoon was widely credited to RFMD affirming guidance
for Q2 and raising guidance for Q3. This triggered short covering
in the semiconductor sector right after the buy program had brought
the market off the lows. If the shorts that were still staring in
disbelief at the close decide to cover we could get a significant
Friday morning bounce. The challenge on Friday will be the GDP
report, Michigan Sentiment and Chicago PMI report. The GDP is
likely to show the economy is officially in a recession and the
Michigan sentiment is sure to show a significant drop. Should the
numbers be significantly bearish the market could react negatively.
However, most investors and analysts already know conditions are
bad and that is factored into the market. Numbers that are not as
bad as expected could encourage traders to buy thinking the bottom
has been seen.

The Fed meets again on Tuesday and analysts are mixed on the cut
potential. Almost everyone agrees we will see another 25 point drop
but there is also a significant case for another 50 point cut as
well. The past cuts have had no real impact on the markets or the
economy and the consensus is that now is not the time to stop being
aggressive. Therein lies the rub. The market could be expecting a
50 point cut and the Fed may decide to keep it slow and consistent.
While I don't think the actual cut will have any real impact on
the markets next week, it is the long term impact that investors
will bet on. While you can't tell from the results of the last
nine months of cuts they will eventually power the next bull market.

There will be a recovery eventually and stocks are not going to get
much cheaper. The risk of being in the market today is much lower
than being out of the market when the rebound occurs. Funds know
this. Their time horizon is much longer than the individual traders.
Funds cannot just "get in" on a moments notice. When you are buying
hundreds of thousands or even millions of shares you have to scale
in over weeks or even months. Those funds that have been waiting
for the customary October dip to create or add to positions are
thinking long and hard about the gains from this week and wondering
if the time is right to strike. The end of the quarter window
dressing just accelerated that decision for a select few. The rest
are still on the fence and the countdown clock is running.

Don't get me wrong. Things have not miraculously changed in the tech
sector. Cisco set another 52-week low on Thursday. All the Nasdaq
big caps finished negative. I simply see that glimmer of light in
the distance and every positive day in the markets brings that light
closer and puts a little more uneasiness in the bears who are still
expecting the normal October crash. One constant in the markets is
that once a trend is recognized, trading habits change to capitalize
on the trend and the trend disappears. Could this be the year that
October goes down as the largest monthly gain instead of the biggest
drop? Who knows but bears are becoming increasingly hesitant to bet
against it. Did the WTC disaster change the normal patterns? Of
course! Has your mindset changed since you started reading this
article? I hope so! As traders we should trade what we see not what
we believe. If your belief has been challenged then you will be a
better trader. Some analysts believe that the Nasdaq completed a
successful retest today of the Friday close of 1423. The intraday
low on Thursday was 1418 before the rebound to close at 1460. The
afternoon support last Friday was in the 1412 range and we did not
hit that today. This is all grasping at straws but past rallies
have been built on less. If last Friday's lows were the bottom then
we should know that very soon. Each higher low will win more converts
and buyers will appear. Lower lows will cause bargain hunters to
move back to the sidelines. Watch the 1420 level as we go forward
from here. If it breaks then the October trend is alive and well.

I get emails daily telling me that the Nasdaq is going to 900, 800,
700 etc, and get on the train. Sorry, that train is not going in my
direction but I will trade which ever direction the markets go. If
you are not a "put" trader that is fine. The time for calls will come.
Those who have been following our put plays recently saw a $24 drop
in Checkpoint and a $10 drop in PMCS in just the last seven days.
Could you have profited from those moves? Does Osama wear a turban?

Definitely, enter passively, exit aggressively!

Jim Brown
Editor


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****************
MARKET SENTIMENT
****************

Late Day Rally

Some poor economic data had the Dow down 96 points before a late-
day rally, possibly due to end of quarter window dressing by fund
managers, pushed the Dow up 114 points.

Orders for durable goods fell 0.3% in August, slightly more than
consensus estimates of a 0.2% drop.  Gains in communications
equipment and semiconductors were offset by declines in aircraft
and automobile orders.  The overall book-to-bill ratio remains
below one, but inventories did decline for the seventh straight
month.

Initial jobless claims came in higher than expected at 450,000,
and the number of people still collecting unemployment rose to
3.298 million.  Based on airline layoffs and the latest release
of the Help Wanted Index, unemployment could continue to worsen.

The Conference Board Help Wanted Index fell to 53 in August, a
40% drop from the end of last year.  While online ads may play a
part in this low number, it is still the lowest reading since
1983.

Economic data was fully expected to come in bad, but it still
cast a pall over Wall Street.  That gloomy mood lasted until
about 2 o'clock when stocks started to surge.  It's hard to have
a lot of faith in the rally since it smelled of fund managers
shuffling their portfolios, rotating out of tech into defensive
issues.

Mutual fund investors continue to lose faith, pulling another
$9.5 billion out of stock funds.  Even bond funds saw $1.1
billion in outflows.

S&P 500 8/98 to 11/98 and 2/01 t0 5/01 Daily Charts



So what might happen if this rally proves to be false?  Perhaps
the S&P 500 will from a double bottom like it did back in October
of 1998 and April of this year.

S&P 500 Daily Chart



We're halfway there, but the direction of the S&P 500 is yet to
be determined.  The 1,000 level has held the past three days, and
could be the level to watch.  If the S&P 500 continues to hold
this level, perhaps it is consolidating before moving higher.  If
it drops below it could be starting the second half of a double
bottom.

Tomorrow's Chicago Purchasing Managers Index and revised consumer
sentiment could set the tone early.

-----------------------------------------------------------------

Market Volatility

VIX   37.41
VXN   65.91

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total          0.81        641,828       520,113
Equity Only    0.71        581,666       412,989
OEX            0.78         10,515         8,237
QQQ            1.12         39,382        44,088

-----------------------------------------------------------------

Bullish Percent Data


           Current   Change   Status
NYSE          18       -      Bear Confirmed
NASDAQ-100    12      +12      Bear Confirmed
DOW           18       -      Bear Confirmed
S&P 500       16       -      Bear Confirmed
S&P 100       16       -      Bear Confirmed

Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart.  Readings above 70 are considered overbought, and readings
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

-----------------------------------------------------------------


 5-Day Arms Index  0.91
10-Day Arms Index  0.94
21-Day Arms Index  1.18
55-Day Arms Index  1.23

Extreme readings above 1.5 are bullish, and readings below .85
are bearish.  These signals don't occur often and tend be early,
but when the do, they can signal significant market turning
points.

-----------------------------------------------------------------

        Advancers     Decliners
NYSE      1931           1185
NASDAQ    1710           1851

        New Highs      New Lows
NYSE       34            220
NASDAQ     11            359

        Volume (in millions)
NYSE     1,472
NASDAQ   2,034
-----------------------------------------------------------------

Advisory Sentiment

Bullish  Bearish  Correction  Net Bullish   Change
  35.7%    37.6%     26.7%       -1.9%      -15.3%

A bearish reading of 25% to 30%, combined with a bullish reading
greater than 55% is typically considered bearish by contrairians.
A net percentage greater than 30% is also viewed as bearish.

-----------------------------------------------------------------

Commitments Of Traders Report: 09/18/01

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

This week's data only reflects trading on Monday and Tuesday, but
in those two days commercial traders added 47,027 long positions
and only 29,753 short positions.  That drops their net bearish
stance by 17,274 contracts.  Small traders on the other hand
loaded up with 31,441 short contracts.  Right now it looks like
small traders made the right move, but we shall see next week.

Commercials   Long      Short      Net     % Of OI
9/04/01      350,626   430,613   (79,987)   (10.24%)
9/10/01      359,360   442,070   (82,710)   (10.32%)
9/18/01      406,387   471,823   (65,436)   ( 7.45%)

Most bearish reading of the year: (111,956) - 3/6/01
Most bullish reading of the year: ( 41,144) - 5/1/01

Small Traders Long      Short      Net     % of OI
9/04/01      147,080     62,004   85,076     40.69%
9/10/01      156,500     69,090   87,410     38.75%
9/18/01      172,988    100,531   72,457     26.49%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01

NASDAQ-100

Small traders have gotten more bearish, and are approaching their
most bearish levels of the year.

Commercials   Long      Short      Net     % of OI
9/04/01       28,757     38,119   ( 9,362)  (14.00%)
9/10/01       26,784     37,912   (11,128)  (17.20%)
9/18/01       35,497     45,731   (10,234)  (12.60%)

Most bearish reading of the year: (15,521) - 3/13/01
Most bullish reading of the year:  (1,825) - 1/02/01

Small Traders  Long     Short      Net     % of OI
9/04/01       12,341     9,806    2,535      11.45%
9/10/01       15,263    12,555    2,708       9.73%
9/18/01       22,876    21,702    1,174       2.63%

Most bearish reading of the year:  (1,028) - 1/02/01
Most bullish reading of the year:   8,460  - 3/13/01

DOW JONES INDUSTRIAL

Institutions continue to increase their net long position in Dow
futures.

Commercials   Long      Short      Net     % of OI
9/04/01       23,459    14,099    9,360     24.9%
9/10/01       25,445    13,033   12,412     32.3%
9/18/01       28,425    15,077   13,348     30.7%

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 13,348  - 9/18/01

Small Traders  Long      Short     Net     % of OI
9/04/01        6,952    12,744    (5,792)   (29.41%)
9/10/01        7,460    12,735    (5,275)   (26.12%)
9/18/01        7,335    15,044    (7,709)   (34.45%)

Most bearish reading of the year:  (7,572) - 5/08/01
Most bullish reading of the year:   1,909  - 1/16/01

COT Commercial Net Position Charts



-----------------------------------------------------------------


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PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

NOK $15.85 -0.23 (+0.20) Although NOK managed to hold just above
the 20-dma on Thursday, the strength that had emerged last week
is fading, as evidenced by the daily Stochastics, now in full
dive mode.  Rather than buck the downward market trend, we'll
take this opportunity to exit the play before conditions worsen.


PUTS:
*****

CHKP $20.70 -0.96 (-3.42) Breaking up is always hard to do.  We've
been covering CHKP for so long that the stock has become a familiar
face.  In the roughly two months that we've covered this play,
we've been given plenty of opportunities for profit.  Get this: We
captured more than $20 to the downside in this play!  CHKP could
very well continue working lower.  But, it's dip down to the $20
level Thursday was what we'd been looking for and we feel that it
would be appropriate to drop coverage on the play tonight.  Those
with open positions can use any future dip below $20 to exit
positions.

CHV $83.50 +4.73 (-0.51) It felt like a classic 'short on the
rumor cover on the news' event Thursday after OPEC agreed to
leave production at current levels.  CHV's price action Thursday
also reinforced why it's so crucial to stick to your discipline
and exit plays for profit when the opportunity is given.  We
remarked Tuesday: "We've captured a significant move in this play
so far, and those with entries at much higher prices should be
thinking about locking in some gains down around current levels,
especially with the $78 level fast approaching."  The $78 level,
as we pointed out last Tuesday, has served as support in the
past, and it did again Wednesday.  Hopefully bearish traders took
the opportunity to book gains!

PMCS $10.05 -1.67 (-4.46) Since initiating bearish coverage on
PMCS seven trading days ago, the stock has fallen in each of those
days to the tune of about $10.  In fact, the stock has shed about
30 percent just this week.  After hitting a home run like this,
there's only one thing a trade can do: Take Profits!  Furthermore,
trading puts on stocks below the $10 level just doesn't make
sense.  That being the case, it's time to book 'em!

CTX $32.58 -0.62 (+2.50) We've reached a critical juncture in our
CTX play.  The stock could be setting up for a big rollover from
current levels, as is the case with its sector cohorts such as
BZH and PHM.  But, the market acts like it could go higher over
the short-term.  As a result, we're taking the precautionary
steps to drop the play.  Those with open positions should be
snugging stops down in order to manage risk in case the market
does carry CTX higher.

PHA $40.06 +1.32 (+1.71) All good things must come to an end,
and it appears that PHA is beginning to respond to strength in
the Pharmaceutical sector (DRG.X) which has staged an impressive
rally this week as investors seek out defensive sectors for
their investment dollars.  The closing chapter to our play came
this morning as the bulls powered through our $39 stop and then
the $40 resistance level.  Use any profit-taking weakness
tomorrow to exit any open plays.

TRMS $35.09 +2.99 (+1.98) After the sharp decline over the last
month, an oversold bounce was due to appear.  The magnitude of
the bounce was unexpected however and the strength into the
close pushed TRMS above our $35 stop.  This could be the
beginning of a significant rebound, with daily Stochastics
moving into bullish move, so we'll stick with our stop and exit
the play tonight.


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The Option Investor Newsletter                 Thursday 09-27-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/3592_2.asp


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* FREE REAL-TIME quotes and custom option chains
* $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees.
* ZERO minimum deposit required to open an account
Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1

Note: Options involve risk. Risk disclosure:
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**************************************************************


**************
TRADERS CORNER
**************

The "inside day" trading technique
By Jeff Bailey

One of the most simple yet effective shorter-term trading
technique that a trader can learn is the "inside day."  Some
stocks act rather "predictable" when studied over a more
historical time period and its a technique that traders can back
test on their own to determine its effectiveness.

Traders looking to incorporate a disciplined and systematic
approach to their trading might find this technique useful.  If
you're a trader that lacks discipline in their trader, then
perhaps this technique will help get you back on course.

Here's the set-up for an inside day trade.  At first set-up, the
trade has NO bias.  The inside day is simply a hint that market
participants may be agreeing on price and the stock is finding a
level of agreement.  The up or down break of the "inside day" is
perhaps a sign for bearish traders to cover their short positions
(if the stock breaks higher), or bullish traders to sell their
long positions (if the stock breaks lower).  With this thought
process in mind, the trader looking to establish a trade simply
plays the break.  Again, there is no bias prior to the break, and
you're simply playing the break of the "inside day."

Amgen Chart - Daily Interval



Imagine it is July 17th and the trading session has ended.  Your
looking through charts for "inside days" and you note that Amgen
(NASDAQ:AMGN) has set up an inside day.  You make note and write
down.... "BULLISH on break above $55.89, BEARISH on break below
$55.61).  More risk averse traders would set their stops at the
opposite end of the inside day.  For example, should the stock
break to the upside, then a tight stop could be set just under
the $54.61 level.  Swing traders might choose a stop just under
the previous day's low of $53.46.  See how we're incorporating
some very basic supply/demand principles into this type of
trading?

Now, lets roll forward one day.  Remember, BULLISH at $55.90 and
BEARISH at $54.60.

Amgen Chart - Next trading day



The next trading session, shares of AMGN opened at $55.91 and
that break higher might have had a trader trading long in AMGN.
By session's end, that would have been a wise choice as the stock
finished the session up nearly 7.4%.  Let's move on and just
continue to use the discipline of raising a stop under the
previous trading session low and see what happens.

Amgen Chart - 4th day into trade



Eventually, the trade is stopped out as the previous trading
session low is violated to the downside at $59.54.  Sometimes a
swing trader will give the stock a little more room, but
hopefully you see how disciplined the "inside day" trading
technique is.

Traders will also note on the above chart, the formation of an
"inside day" that occurred on 07/19 (3rd bar from right of
chart).  That trade would have resulted in a marginal loss, but
the discipline remained the same.  Also note how volume plays an
important role in using the inside day.  The bulk of the volume
came from the first move higher.  Once volume began to taper off,
you get the feeling that the MARKET was perhaps losing some
interest in the stock at the higher price.

Not all inside days should be traded!  What if the first inside
day that developed had found shares of AMGN gapping up to the $60
level?  Is entry at $60 with a stop just below the $54.61 level
(previous day's low) considered good risk/reward for establishing
a bullish trade?  Every trader has his or her own risk/reward
tolerances so I can't answer that, but I try to avoid chasing
large gaps higher.

Resistance levels

Look for resistance levels.  In the above example, the 200-day MA
and 50-day MA were perhaps far enough away that their potential
resistance still gives the trade at $55.91 some upside.  Had the
200-day MA or 50-day MA been right at $56, a trader may have
wanted to wait and see a move above the moving average take place
before initiating a position.

This only works once in a while!

The inside day seems to simple and easy.  It can't work like this
all the time right?  Yes, it doesn't work all the time, but it's
an effective trading technique that can add some discipline to
your trading and feeds off ones belief of supply and demand.

Hey!  Look at this!

Here we are in live trading.  Two sessions ago, shares of AMGN
once again set up an "inside day" with very similar MACD
characteristics found from the above charts.  Now a trader might
have his/her "bias" as to trade direction.  Some trader are well
advised to be monitoring the sector also for strength/weakness.
Once you get used to the technique, you may get comfortable with
some "bias" toward potential direction.  That's OK, but always
honor your stop!

Amgen Chart - Several days after terrorist attacks



A bullish trade in AMGN on 09/26 at the open of trading at $57.40
would currently have a bullish "inside day" trader sitting with
some stock at $58.77 and perhaps targeting the 50-day MA at
$60.56, with a stop just under the previous session's low of
$56.84.  Once again, note a pickup in volume on the break above
the inside day.  The above chart was printed at 01:30 EST on
09/27/01 so we don't have a full day's volume at this point.  A
trader that has been trading some inside days on AMGN and getting
familiar with the stock may now have some idea of how the stock
trades based on prior history.

Sector Analysis can be helpful!

Amgen (AMGN) is a biotech stock and therefore it makes sense that
a trader in AMGN needs to be monitoring the Biotech Index (BTK.X)
for some correlative information.

Biotechnology Index (BTK.X) - Inside day correlation



It's our belief that sector analysis is key when trading.  The
more "aligning of the stars" a trader can stack in his/her favor
the better.  A trader that traded bullish in AMGN on 07/18 or
just recently on 09/26 has been getting some confirmation from
the sector that their was or has been some upside progress by the
rest of the herd.

Sector Traders!

Sector traders should be absorbing some of this information as
well.  Sectors don't move without their components moving.
Sector traders that will monitor some of the heavier weighted
stocks in the sectors that they're trading will have an advantage
over those that simply trade the sector without the knowledge of
what's driving things higher or lower.  A trader that trades the
Biotech HOLDRS (BBH) should be monitoring AMGN and other stocks
like Biogen (NASDAQ:BGEN).  You'll become a much more successful
and confident trader.

Paper trade it first!

I've never been one to take anyone's word for simple face value.
A good trading system can be back tested for results.  Some
stocks will trade more "predictable" with the inside day.  If
there's a stock you like to trade, but the "inside day" just
doesn't seem to provide the desired results, then don't trade
that stock using the inside day!  It's that simple.

The above examples were used as "bullish" as that's the way the
stock seemed to break.  BEARISH traders will also find the inside
day useful.  What if you were short/put going into some of the
"inside days?"  Might you not have lowered your stops in the
trade to a level just above the previous day's high?  They system
is the same, just a reversal of action points and stops.

If you're a short-term trader or swing trader, perhaps the
"inside day" trading technique will be of use.  Don't forget your
sector analysis as the more stars that align the better.  If you
start seeing deviation or lack of correlation between a stock and
its corresponding sector, then that's DIVERGENCE and should have
a trader tightening their stops.


********************
PLAY UPDATES - CALLS
********************

ATK $89.34 +5.79 (+8.73) Not by surprise, ATK led the rally in the
Dow and S&P Thursday afternoon.  The stock closed near its day high
and at a new all-time high.  A large part of ATK's advance Thursday
was related to end-of-quarter window dressing.  The stock could see
some follow-through early Friday, but traders should be on the
lookout for a profit taking pullback Friday afternoon.  That said,
chasing the stock higher from current levels isn't the best
approach in terms of risk versus reward.  In fact, those with open
positions should be looking to book some gains into any strength
early Friday.  In terms of new entry points, we'd rather wait for
the stock to pullback to support between the $82 and $85 levels.
From there, risk can be measured much more easily.  For our
coverage purposes, we're moving our stop up to the $82 level.  But,
traders with gains in this play should take into account their
entry point and time horizon when determining their unique stop
level.

MO $49.00 +2.14 (+2.32) MO finally go its act together Thursday.
It's been an exercise in patience waiting for this stock to rally,
but our discipline proved profitable Thursday.  MO provided a
perfect example of why buying stocks near support is a solid
strategy in this market.  Looking forward, MO could see some
follow-through into Friday's session, but keep in mind that the
stock is near the upper-end of its trading range, i.e. resistance.
Ideally, we'd like to see the stock pause for a few days around
the $49 to $49.50 level, from which we can then look for a
breakout.  That said, traders with open positions might look to
book partial gains after MO's $2 advance Thursday.  Conversely,
those standing on the sidelines might consider waiting for a
pullback to support between $47.75 to $48.

RTN $34.80 +2.63 (+0.76) RTN's price action Thursday felt an
awful lot like end-of-quarter window dressing.  The stock appeared
to be under institutional accumulation, which carried it up to the
$35 level.  For those who entered on the stock's pullback down
around the $32 level Wednesday, consider that a roughly $3 move
in this stock is rather large.  In other words, booking some gains
around current levels is a good idea for those who entered on the
dip.  Above the $35, the stock will again face resistance at $36,
where it opened following the terrorist attacks.  But, instead of
chasing the stock higher, those looking for new entries into this
play should be waiting for a pullback down to significant support,
such as the $34 level, or lower around $33.  Our stop has been
moved up to $32.50, but those with open positions should consider
a tighter stop in order to protect profits.

QCOM $47.56 +1.23 (+2.67) QCOM traced a relatively higher low
Thursday, which is certainly a good thing.  The stock's bounce
from the $45 level was encouraging and its out performance to the
upside late Thursday reinforced that QCOM has some relative
strength working in its favor.  If the Nasdaq gets moving to the
upside, we should see QCOM make its way back above the $50 level.
But, it's highly dependent upon the Nasdaq.  That said, momentum
traders can take new entries at current levels if the COMPX is
advancing early Friday, but with the understanding that a tight
stop should be employed with momentum-based strategies.  Any
entry taken around current levels can be confirmed with an
advance above near-term resistance around the $49 level.  As for
support, QCOM found bids at the $45 level Thursday, so traders
might consider using that level for a future entry point on any
weakness.

CMCSK $35.30 +0.92 (+2.79) Pressure is building for a breakout,
as CMCSK gradually works higher.  As the daily lows continue to
creep higher, the stock is being pressured from above by the
20-dma (currently $35.53).  The pressure will have to be
released pretty soon, and our bet is for a continued bullish
move, with the daily Stochastics still in a solid ascent.  Those
looking for a new entry may want to target intraday dips to the
$34-34.50 level, but keep stops in place at $33.  If you'd
rather wait for the breakout before playing, look for CMCSK to
clear the 20-dma on continued strong volume.  Just be aware that
there is some significant resistance just over $36 that will
take some bullish determination to overcome.

GE $35.95 +0.47 (+4.65) The sharp rebound in shares of GE early
in the week relieved the extreme oversold condition and since
then there has been no clear advantage to either the bears or
the bulls.  Since that early pop, shares of the company have
been stuck between $35-36.  This narrow range gives us a couple
of solid entry strategies.  Either target a renewed bounce from
the $35 or even $34 levels or a volume-backed move above $36 for
new positions.  The market is trying to find new direction and
if the bulls are victorious in this tug-=of-war, GE should lead
the charge.  Our stop is currently $33.50, as any drop below
that level would indicate that the stock is heading back down to
fill gap from Monday morning.

ORCL $12.04 -0.16 (+1.28) Bucking the trend in Technology
shares, ORCL is holding on to its gains from earlier in the
week, finding support near $12.  Whether this is an entry point
remains to be seen, but it is encouraging to see this Software
stock hold that level of support.  Further support is found just
below at $11.50, and dip buyers can consider new positions near
either of these levels so long as there is some indication of
increased buying volume.  The declining 20-dma (currently
$12.20) has been pressuring ORCL over the past several days, and
with daily Stochastics beginning to roll over, the more prudent
entry strategy will likely be to wait for a solid push above
$12.50 before playing.  Keep stops in place at $11.50.

PPDI $28.02 +0.14 (+2.40) The sharp oversold rally in shares of
PPDI was due for a rest and that is precisely what we have seen
over the past couple days.  Yesterday's pullback from the $30
level paused above the 20-dma (currently $27.60) and that level
provided support once again today.  Despite more weakness at the
open this morning, the buyers once again stepped up to push PPDI
higher into the close, just squeaking above the 200-dma
($27.95).  Volume has dropped back to the ADV and we're going to
see renewed buying support to carry the stock higher, especially
with solid resistance at $30.  Our stop is currently resting at
$25.50 and we would look for aggressive entry points to
materialize on an intraday dip between $26-27, but only if the
dip is met by solid buying interest.


**************
NEW CALL PLAYS
**************

ENZN - Enzon $52.03 +3.55 (+7.05 this week)

Enzon is a biopharmaceutical company that develops and
commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary platform
technologies: polyethylene glycol (PEG) and single-chain antibody
(SCA).  The company applies its PEG technology to improve the
delivery, safety and efficacy of proteins and small molecules
with known therapeutic efficacy.

The AMEX Biotechnology Sector (BTK.X) appears to have traced a
short-term bottom over the past few sessions.  For its part, the
BTK shouldn't face resistance for about another 35 points from
its current levels.  ENZN's price action over the past several
sessions has pretty closely mirrored the BTK's, except that ENZN
has performed slightly better.  Because of its relative strength,
we're looking for ENZN to continue higher over the short-term.
It's this simple: The BTK is one of the stronger sectors
currently and ENZN is one of the stronger stocks within the
sector.  In terms of trade execution, bullish traders can take
new entries at current levels if the BTK follows through into
Friday's session.  Bullish traders can look to the BTK to take
out its intraday high Thursday at 452 for a sign that the index
wants to work higher.  Although, a pullback in ENZN down to the
$50 level may offer a better entry in terms of risk versus
reward.  To the upside, ENZN's first level of resistance is at
the $55 level, at which a gap exists above up to the $59 level.
Because of the lack of resistance above current levels, momentum
entries may be attractive if the BTK and Nasdaq continue working
higher.  We're initiating coverage with a stop at $47, but traders
should use implement their unique stops according to entry points.

BUY CALL OCT-50*QYZ-JJ OI=2438 at $5.20 SL=3.75
BUY CALL OCT-55 QYZ-JK OI= 952 at $2.95 SL=1.75
BUY CALL NOV-50 QYZ-KJ OI=  61 at $7.00 SL=5.25
BUY CALL NOV-55 QYZ-KK OI= 773 at $4.70 SL=3.25
BUY CALL NOV-60 QYZ-KL OI= 356 at $2.90 SL=2.00

Average Daily Volume = 1.37 mln



MTG - MGIC Invest $62.89 +2.58 (+6.70 this week)

MGIC Investment is a holding company that, through its wholly
owned subsidiary, Mortgage Guaranty Insurance Corp., is a
provider of private mortgage insurance coverage in the United
States to the home mortgage lending industry.

The insurance sector, as measured by the Insurance Sector Index
(IUX.X), has traced a V-bottom over the past several sessions.
The sector looks like it will continue higher over the short-term.
Despite the estimated $30 billion in claims stemming from the
recent terrorist attacks, the insurance sector is rebounding in
a big way.  There are two distinct catalysts behind the group's
move.  First, the government is considering a relief fund that
would insulate the insurers from any future terrorist attacks.
And second, as a result of the attacks, many firms are raising
premiums.  These two driving forces are carrying shares of major
insurers higher, which is why we were initially attracted to MTG.
But, in addition to the aforementioned catalysts, it should be
noted that MTG caters to the home mortgage segment of the
business, which should be relatively insulated from terrorist
attacks.  With the fundamental backdrop in place, bullish
traders can look for further strength in the IUX early Friday
and consider taking entries in MTG above the $63.50 level.
If profit taking sets in, don't be to concerned.  The group
has had a good move already this week, but a pullback in
MTG from current levels would only provide a better entry
point.  Bounces from support at $62, or lower down around the
$60 level would offer favorable entries in terms of risk
versus reward.  Our stop is initially in place at $59.25.

BUY CALL OCT-60*MTG-JL OI=  5 at $5.00 SL=3.00
BUY CALL OCT-65 MTG-JM OI=130 at $1.95 SL=1.00
BUY CALL DEC-60 MTG-LL OI=120 at $6.70 SL=5.00
BUY CALL DEC-65 MTG-LM OI= 12 at $4.00 SL=3.00

Average Daily Volume = 634 K



BAC - Bank of America Corp. $56.88 +1.83 (+5.88 this week)

Providing a diversified range of banking and certain
non-banking financial products and services, BAC's operations
consist of Consumer Banking, Commercial Banking, Global
Corporate and Investment Banking, and Principal Investing and
Asset Management.  Consumer Banking targets individuals and
small businesses, while Commercial Banking targets businesses
with annual revenues up to $500 million.  Global Corporate
and Investment Banking provides investment banking, trade
finance, treasury management, leasing and financial advisory
services.  Principal Investing includes direct equity
investments in businesses and general partnership funds, while
the Asset Management businesses are split into three branches;
Private Bank, Banc of America Capital Management and Banc of
America Investment Services.

After a precipitous drop following the disaster of September
11th, Banking stocks have been seeing some concerted buying
interest.  The Banking index (BKX.X) dropped to the $700 level
before catching a solid bounce, and our new play, BAC, found
its own support near $50.  Since then, the stock has reclaimed
the 200-dma (currently $54.99), and we saw robust buying volume
propel the price higher on Thursday.  If the rally is going to
continue, it is going to need the bulls to retain their resolve,
especially with the 20-dma ($57.92) combined with significant
resistance at $57 looming just overhead.  Intraday dips to the
$55 level could provide for attractive entries, so long as
volume remains strong, while momentum traders will want to
target new positions as BAC clears the $58 level.  We are
initiating coverage of the play with our stop at $54, as a fall
below that level would likely indicate a significant weakening
of the bulls.  Monitor the BKX index for continued sector
strength, as a continued push above $785 should indicate more
upside for our play.

BUY CALL OCT-55*BAC-JK OI= 3470 at $3.80 SL=2.25
BUY CALL OCT-60 BAC-JL OI= 6360 at $1.05 SL=0.50
BUY CALL NOV-55 BAC-KK OI= 5187 at $4.90 SL=3.00
BUY CALL NOV-60 BAC-KL OI= 9663 at $2.05 SL=1.00
BUY CALL JAN-60 BAC-AL OI=24984 at $3.00 SL=1.50

Average Daily Volume = 5.49 mln



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*******************
PLAY UPDATES - PUTS
*******************

BBY $42.50 +0.11 (-0.90) BBY led to the downside during
Thursday's early weakness and it lagged during Thursday's late
strength.  Its price action reinforces that BBY is a relatively
weak stock in a relatively suspect sector.  The stock traced a
new relative low down around $40, which may have allowed bearish
traders with open positions to exit for a short-term profit.  On
the other hand, the stock's late day rebound looked to be nothing
more than short covering.  As such, a rollover is to be expected
in the coming days if the S&P weakens.  Bearish traders might
first look for a rollover up around the $43 level, or higher up
around $45.  Keep close tabs on the Retail Sector Index (RLX.X)
for confirmation when trading BBY.

SV $19.03 -0.65 (+0.05) The good news Thursday was that SV took
out its relative low traced last Friday.  Albeit a minor dip, SV's
weakness below the $18.70 level early Thursday reinforced that
the stock is relatively weaker than the broader market.  The bad
news, however, was that SV rebounded into the close of trading.
But, again, the stock finished measurably lower, so we feel pretty
good about our bearish bet in this play.  For new entries, bearish
traders can look for a rollover from current levels, or higher
around $19.75, depending upon market conditions.  The preferred
entry in this play would be on a failed rally instead of entering
into further weakness because of the stock's low price.  When
you're trading a sub-$20 stock, every point counts!

EBAY $45.11 +1.07 (+1.32) Bullish traders are trying to defend
EBAY's price near the $40-41 level, and this is likely to
produce another attractive entry point in the days ahead.  The
stock has held up better than the broader Internet index
(IIX.X), but with a still rich valuation (PE=150), EBAY is
vulnerable to significant price weakness as the economy
continues to weaken.  Resistance has been firming up near $48,
and we would look for new entry points to materialize as the
stock once again rolls over near that level.  We are still
giving the stock a wide berth, with our stop at $49.  While we
would like to target a fresh entry near $48, the descending
trendline points to possible resistance near $46.  While
nervous investors may want to consider taking some profits as
EBAY approaches $40 again, the longer-term picture points to a
drop to $35 and possibly even the spring lows near $30.

ENE $25.25 +0.10 (-3.05) Despite a slight firming in Energy
prices, shares of ENE continue to work lower, drawing closer to
major support near $22.  Each rally attempt is being met with
eager sellers near the 10-dma (currently $27.90), and a return
to that level should provide for fresh entries as the stock once
again rolls over.  The protracted selloff is making the long-term
oscillators nearly useless for determining the stock's direction,
but the hourly chart Stochastics have been very reliable at
pointing out entry points each time it rolls over from overbought
territory, most recently last Friday near $29.  As we are getting
close to the $22 support level, we would be very careful
initiating new positions on renewed weakness, and would instead
look to take profits as ENE approaches that level.  Selling into
the rallies is the high-odds approach for now, and we'll
continue to apply that strategy until it ceases to be profitable.
Move stops down to $28.50.


************
NEW PUT PLAY
************

MVSN - Macrovision Corp. $28.48 -2.53 (-3.17 this week)

Helping to keep intellectual property rights intact, MVSN
designs, develops and licenses copy protection and rights
management technologies.  Integral to the entertainment
industry, the company provides copy protection for major
Hollywood studios, independent video producers, PC games,
digital set-top box manufacturers and digital pay-per-view
(PPV) network operators.  In addition to helping content
owners protect content such as videocassette, DVD and PPV
movies, and PC games, MVSN also provides the ability to
electronically market that content in a secure manner.

It didn't take long after trading reopened last week for
investors to figure out that the profit outlook for virtually
all Technology companies was going to be worse than originally
thought.  The April lows near $34 failed as support early last
week and now that level is looking like formidable resistance.
Bullish traders tried to step in and support the share price
near $28, but after a few days of consolidation, the bears
gained the upper hand and pushed MVSN down to a new yearly
closing low on Thursday.  Volume confirmed the bearish picture
today as it exceeded double the ADV, while the stock fell more
than 8%.  Failed rally attempts should provide the best entry
points, especially if MVSN rolls over near the $34 resistance
level, also the location of our stop.  But with the weakness
shown today, we may have to settle for stepping into the play
as MVSN drops under the $28 support level -- just make sure the
volume remains strong.  The first significant level of support
below there will be near $22-23, and as MVSN approaches that
level, it may make sense to harvest some profits.

BUY PUT OCT-30*MVU-VF OI=2164 at $3.70 SL=2.25
BUY PUT OCT-25 MVU-VE OI=  23 at $1.50 SL=0.75

Average Daily Volume = 1.05 mln



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**********************
PLAY OF THE DAY - CALL
**********************

QCOM - Qualcomm $47.56 +1.23 (+2.67 this week)

Qualcomm is engaged in developing and delivering digital wireless
communications products and services based on the company's
CDMA digital technology.  The company's business area include
integrated CDMA chipsets and system software; technology
licensing; Eudora email software for Windows and Macintosh
computing platforms; satellite-based systems including portions
of the Globalstar system and wireless fleet management systems,
OmniTRACS and OmniExpress.

Most Recent Update

QCOM traced a relatively higher low Thursday, which is certainly
a good thing.  The stock's bounce from the $45 level was
encouraging and its out performance to the upside late Thursday
reinforced that QCOM has some relative strength working in its
favor.  If the Nasdaq gets moving to the upside, we should see
QCOM make its way back above the $50 level.  But, it's highly
dependent upon the Nasdaq.  That said, momentum traders can take
new entries at current levels if the COMPX is advancing early
Friday, but with the understanding that a tight stop should be
employed with momentum-based strategies.  Any entry taken around
current levels can be confirmed with an advance above near-term
resistance around the $49 level.  As for support, QCOM found
bids at the $45 level Thursday, so traders might consider using
that level for a future entry point on any weakness.

Comments

QCOM's strong end-of-day showing Thursday may portend further
upside early Friday.  The stock faces some congestion around
$48, but could see the upside of $49 if the bulls return.
Momentum traders could take a quick day trade on strength early
Friday, but just be aware of afternoon weakness if bulls shy
away from holding positions over the weekend.

BUY CALL OCT-45*AAO-JI OI=9877 at $5.10 SL=3.75
BUY CALL OCT-50 AAO-JJ OI=9216 at $2.40 SL=1.75
BUY CALL NOV-45 AAO-KI OI=2290 at $6.90 SL=5.00
BUY CALL NOV-50 AAO-KJ OI=1494 at $4.30 SL=3.25

Average Daily Volume = 11.8 mln



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